Tag: federal tax

Sources of Tax Revenue: U.S. vs. OECD

Mary Pat Campbell
Sources of Tax Revenue: U.S. vs. OECD

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Compared to the OECD average, the United States relies significantly more on individual income taxes and property taxes. While OECD countries on average raised 24 percent of total tax revenue from individual income taxes, the share in the United States was 41.5 percent, a difference of 17.5 percentage points. This is partially because more than half of business income in the United States is reported on individual tax returns. OECD countries on average raised 5.6 percent of total tax revenue from property taxes, compared to 12.1 percent in the United States.

The United States relies much less on consumption taxes than other OECD countries. Taxes on goods and services accounted for only 17.6 percent of total tax revenue in the United States, compared to 32.3 percent in the OECD. This is because all OECD countries, except the United States, levy value-added taxes (VAT) at relatively high rates. State and local sales tax rates in the United States are relatively low by comparison.

Author(s): Cristina Enache

Publication Date: 17 February 2021

Publication Site: Tax Foundation

Don’t Tax Book Income

Mary Pat Campbell

Link: https://www.forbes.com/sites/shivaramrajgopal/2021/02/17/dont-tax-book-income/?sh=13874daa2f1f

Excerpt:

There are rumors that the Biden administration is thinking of a 15% minimum tax on companies with book or accounting income (“GAAP” income) of $100 million or more. This proposal tends to bubble up on the national policy agenda off and on with unfailing regularity. For example, in April 2019 Senator Elizabeth Warren raised a similar proposal in the early days of her presidential campaign and the Joint Committee on Taxation, as far back as 2006  examined Treasury’s advocacy of such a tax.  Sadly, this was tried once and was a failure. In 1986, the corporate minimum tax was amended to include an adjustment for book-tax differences, being applied from 1987 to 1989 before it was not renewed.

There are many pitfalls associated with the idea of taxing book income. For starters, companies that meet the threshold will try and minimize GAAP income to pay lower taxes. One could argue that is desirable as we often suspect that companies today inflate GAAP income to look better to their shareholders. Tying tax rates to book income would imply that earnings management, or attempts to artificially inflate GAAP earnings, will now incur a real cash outflow cost in terms of higher taxes. However, the usefulness of GAAP earnings would be severely compromised and if distorted by tax related maneuvers, will give managers and speculators even more fuel to spin narratives to justify wild valuations. One can even imagine a world where stock return volatility driven by uninformative earnings numbers might drive away uninformed investors from equity markets.

Author(s): Shivaram Rajgopal

Publication Date: 17 February 2021

Publication Site: Forbes